Sides see differing impact from $15 minimum wage

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Posted: Thursday, December 5, 2013 12:00 am

As fast-food workers participated in another round of one-day strikes on Thursday in cities around the country, labor leaders, economists and industry officials continue to debate the potential effects of raising wages at companies that often assert that such increases would raise consumer prices and shrink the workforce.

Organizers of the fast-food workers’ nascent movement are clamoring for a $15 an hour wage, which would mean a 67 percent pay increase in an industry where wages average around $9 an hour.

Restaurant industry officials have balked at so high a wage, saying it would sharply raise fast-food prices and reduce employment, in part by fueling automation of some jobs. They call the demand of $15 an hour a nonstarter as far as initiating negotiations.

“When you start by insisting on $15 an hour, that’s not conducive to substantive dialogue,” said Scott DeFife, an executive vice president with the National Restaurant Association.

Mary Kay Henry, the president of the Service Employees International Union, which has spent several million dollars to underwrite the fast-food strikes around the country that began a year ago, said it was only a matter of time before the worker protests became so great that McDonald’s, Burger King and other companies agreed to negotiate.

“I think there’s growing recognition that a nerve has been touched,” Henry said. “The industry had better start to take this seriously, because this isn’t going to blow over.”

But even experts who support some increase worry that a raise to $15 an hour would have profound effects on the industry. Arindrajit Dube, an economics professor at the University of Massachusetts, Amherst, said an increase in pay to $15 would push up fast-food prices by nearly 20 percent. With the industry estimating that one-third of its costs go to labor, he said a $15 wage would mean wage increases averaging around 60 percent, raising the cost of a $3 hamburger to $3.50 or $3.60.

Ken Jacobs, chairman of the University of California, Berkeley, Center for Labor Research and Education, differed slightly on the effects, saying a $15 wage would cause a somewhat lesser price increase, perhaps 10 percent, adding that higher pay would save restaurants some money by leading to less turnover and higher productivity per worker. In addition, he said, franchisees might swallow some of the increases instead of totally offsetting them with higher prices.

Stephen J. Caldeira, president of the International Franchise Association, estimated that the demand for $15 wages would lead to a 25 percent to 50 percent increase in fast-food prices. “It would definitely hurt the consumer,” he said. “Increasing the cost of labor would lead to higher prices for the consumer, lower foot traffic and sales for franchise owners and ultimately lost entry-level jobs.”

Within academia, there has been a fierce debate about how much increases in the minimum wage affect employment.

Dube has been a leading voice in arguing that a modestly higher minimum wage does not harm employment levels. Nonetheless, he acknowledged that an increase as steep as the rise to $15 could hurt employment.

“Would I be concerned about possible job losses if there were a $15 minimum wage in the restaurant industry? Yes, I’d be concerned,” he said. “There are concerns it might lead to the substitution of automation for workers.”

Several fast-food chains have already cut labor costs by allowing self-service for soft drinks. And some restaurants have begun replacing counter workers with computer screens that greet customers and ask them to tap in their orders, which are relayed to the cooks.

David Neumark, an economics professor at University of California, Irvine, who has studied minimum wage increases in depth, estimated that raising fast-food pay to $15 would result in a 5 percent or 6 percent reduction in employment. He and Dube said they were reluctant to speculate about the effects of a $15 wage because while many studies have been done about the effects of a 50-cent or $1 increase in the minimum wage, hardly any have been done about the effects of a sharp jump to the $15 area.

Still, Neumark said, “Anyone who thinks sensibly about this should be concerned that $15 would have a big effect on employment.”

Henry, the service employees’ president, said the movement hoped to persuade McDonald’s and other companies to require franchisees to pay $15 an hour. To help the franchisees afford that, she said, the chains might agree to have their franchises pay them lower fees.

But Caldeira bridled at requiring a $15 wage. “It would put folks out of business,” he said.

Henry responded: “In our 90-year history as a union, I’ve never seen a time when workers got a wage increase that put people out of business. It’s in our interest to make sure we secure our employment, not to reduce employment.”

David French, a senior vice president at the National Retail Federation, said, “The real problem with the economy is there aren’t enough people working. There’s been a lot of growth of jobs in the retail and service sector. It’s been one of the bright spots. Why then should the policy response be to create fewer jobs? That’s a bizarre remedy to a crushing problem.”

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